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Okta Should Be Your Go-To Cloud Security Investment

Great quarterly results and forward guidance suggest more upside for OKTA stock

Cloud-based identity management system provider Okta (NASDAQ:OKTA) has had a terrific year, according to the available data. With that, you’d think that OKTA stock should be breaking out to the upside with velocity.

A magnifying glass zooms in on the Okta (OKTA) logo.
Source: Lori Butcher / Shutterstock.com

However, seasoned market participants know that there’s sometimes a disconnect between a business’s financial performance and that company’s share price. Typically, such a disconnect is corrected in due time.

Okta’s strong second-quarter financial results should have been the catalyst that caused a major breakout in the share price. Yet, the opposite happened as the OKTA stock priced actually declined. When securities are temporarily mis-priced, nimble traders can take advantage of this situation.

Besides, the quarterly data is good enough that your timing doesn’t have to be perfect with OKTA stock. You might miss the stock’s breakout moment, but the company’s impressive performance means that there should be more upside ahead sooner or later.

OKTA Stock at a Glance

Okta released its second-quarter data on Aug. 27, and the market was given an opportunity to react to this event the next trading day. By the close of the trading session on Aug. 28, OKTA stock was down nearly 5%.

With that event, OKTA stock continued a persistent sideways pattern which had been in effect for two months. This lateral movement isn’t necessarily a bad thing, though. It’s not unusual for stocks to “take a breather” after a sizable rally.

Specifically, OKTA stock bottomed out in mid-March at $88.66 and rocketed up to its 52-week high of $226.89 during the summer. So, some sideways movement is perfectly healthy as the bulls were entitled to take some time off and digest the gains.

A Tremendous Quarter

Widespread cloud adoption was on full display when Okta recently released its fiscal data for the quarter ending on July 31. Any skepticism should have been put to rest when these results were released.

It’s possible that the market’s expectations were too high and that’s why the share price fell. Is this a problem, or an opportunity? I’ll let you decide for yourself, but the numbers certainly indicate strong momentum for Okta:

  • Total quarterly revenues of $200.4 million, showing a year-over-year improvement of 43%. This result beat Wall Street’s consensus estimate by $14.08 million.
  • $190.7 million in subscription revenues, signifying a year-over-year increase of 44%.
  • Total calculated billings came to $198.1 million, indicating a 27% year-over-year increase.
  • Cash, cash equivalents and short-term investments totaled $2.5 billion at the end of the second quarter.
  • Free cash flow of $37 million, a record for the company.
  • Non-GAAP earnings per share of seven cents, beating Wall Street’s consensus estimate by nine cents

A Convergence of Trends

Clearly, this cloud-based identity specialist thrived during 2020’s second quarter. It’s actually the continuation of a winning streak that has persisted for a number of years.

So, what has precipitated Okta’s outstanding fiscal performance during this time? Okta CEO Todd McKinnon has some insights that might shed some light on this topic:

The three mega-trends that have been driving our business for the past several years – the adoption of cloud and hybrid IT, digital transformation, and zero trust security – are all being accelerated globally by the current environment.

McKinnon is right on the money in his assessment. The convergence of these trends, and particularly the demand for cloud-based, trust-less security solutions, has enabled Okta to expand its business.

There’s no reason to believe that any of these trends will cease in the near future. Traders might have sold off OKTA stock upon the earnings release, but this doesn’t mean that Okta won’t prosper as a business in a growth-oriented market.

The Takeaway

The trading community might debate whether Okta has a strong quarter or not, but the data speaks for itself. Okta stock remains a buy and if the price comes under pressure in the short term, that’s a reflection of trader bias, not the company’s performance.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/okta-stock-should-be-your-go-to-cloud-security-investment/.

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